The origins of political institutions and property rights

Abstract

We study the possible cooperation between nonelites exerting an unobservable effort and elites unable to commit to direct transfers and, thus, always assure the nonelites’ participation. The elites can, however, incentivize investment by granting to the nonelites strong property rights to the input and a more inclusive political process, which entrusts them with control over fiscal policies. Adverse production conditions force the elites to enact strong nonelites’ political and property rights to convince them that a sufficient part of the returns on joint investments will be shared via public good provision. These reforms assure cooperation. When, instead, the expected investment return is large, the elites keep control over fiscal policies but refrain from weakening the nonelites’ property rights, while strengthening their own, if the production conditions are sufficiently opaque. Then, the expected cost of providing the extra public good guaranteeing the nonelites’ participation is too large. These predictions are consistent with novel data on 44 major Mesopotamian polities observed for each half-century from 3050 to 1750 BCE. While a lower growing season temperature favored a larger division of the decision-making power and stronger farmers’ use rights to land, only the latter are related to the diffusion of the very opaque viticulture. In addition, only the inclusiveness of the political process fostered the provision of public and ritual buildings as well as conscripted armies. Crucially, our results are robust to considering the trade potential, the severity of conflicts, and the degree of urbanization.